Sold out

Despite the G4S fiasco, public-sector outsourcing is booming

IT IS hardly a medal-winning performance by G4S, a private security group. The company has admitted that it will be unable to supply the 10,500 guards it promised to Olympic sites, although it insists that it will provide enough staff by the start of the games to earn its £57m ($89m) management fee. Soldiers and police officers have been drafted in to fill the gap. Abuse has been heaped not just on the firm but on the whole business of government outsourcing.

G4S, which has annual revenues of about £1 billion from public-service contracts, guards things as varied as banks and oilfields. The fast-growing firm is part of a contracting boom, described by one consultant as “a golden age in outsourcing”. In total, contracts worth at least £80 billion are currently farmed out to private providers by national and local government, with a rise to around £140 billion predicted by 2015.

Tight budgets are one reason for this growth. Local authorities, the armed forces and the NHS are also drawn by the expertise, economies of scale and (usually) better management that private firms offer. The coalition government, committed to reforming the state, has stressed that “any qualified provider” should be able to compete for public-service contracts.

Yet G4S, whose share price has slumped in the wake of the debacle, is not the only embarrassing failure in public-sector outsourcing. Parliament’s public-accounts committee wants more powers to investigate contracts.

Some leading figures in the industry privately concede that the tendering model encourages buyers to choose the cheapest offer, rather than securing the best quality for the price. Companies that get into trouble providing what they have promised have an incentive to hide problems, as G4S did, because they fear forfeiting payment if they admit they are struggling.

Still, few believe outsourcing will dwindle. Most of it has benefited the public sector. Despite having to pick up the pieces from the G4S shortfall, the Ministry of Defence is pressing ahead with its own outsourcing plans, privatising the highly sensitive but notoriously inefficient procurement branch of the armed forces.

Coincidentally, as furious MPs questioned Nick Buckles, G4S’s chief executive, the BBC aired the final episode of a drama about a mayor blackmailed by Danto Global, a rapacious outsourcing outfit, into handing over the running of an entire city. Virtue eventually triumphs and Danto Global’s ambitions are thwarted. Off-screen, outsourcing’s benefits are many and varied. But not even defenders could deny that it has an acute image problem.